Abstract

This paper measures the insolvency risk of bank in Indonesia. We apply Merton model to identify the probability of defaul tover 30 banks during the period of 2002-2013. This paper also identify role of financial linkage a cross banks on transmitting from one bank to another; which enable us to assess if the risk is systemic or not. The results showed the larger total asset of the bank, the larger they contribute to systemic risk. Keywords : Conditional Value at Risk; Probability of Default; systemic risk and financial linkages;Value at Risk. JEL Classification: D81, G21, G33

Author Biographies

Sri Ayomi

Sri Ayomi is bank supervisor on Financial Services Authority (OJK)

Bambang Hermanto

is lecturer on Economic Department, University of Indonesia

References

Acharya, Viral V. (2009). A Theory os Systemic Risk and Design of Prudential Bank Regulation. PhD Dissertation of New York University

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